Asia Global Institute

Going Beyond a Robot Tax

Monday, March 13, 2017

Going Beyond a Robot Tax

Pamela Mar discusses the need for technological development to slow down in some economies, and accelerate in others.

Bill Gates' suggestion that society should consider a tax on robots to slow the pace at which they proliferate has been roundly criticized from all corners. Technologists and business people say that it will stymie innovation while economists and policymakers say that it will be too difficult to implement effectively.  For sure Gates has touched a nerve:  should we slow down the advance of technology so that our societies can buy time to cope with the consequences?

His suggestion highlights the fact that some advanced economies are reaching a turning point. Until now the advance of technology has brought mostly positive benefits, but going forward, its continued advance may also produce a range of negative impacts, including most visibly, the loss of jobs across both blue-collar and, for the first time, white-collar populations. Societies, by and large, lack effective solutions to deal with the disruption, hence the search for out-of-the-box solutions such as Gates' tax.

Many, including this column, have suggested that we should deal with the disruption caused by the rise of robots by strengthening social protections, stepping up retraining of workers, and revamping education. But even these are imperfect solutions. Social protections are costly for business yet present temporary, partial solutions for affected workers. The ultimate social protection, a universal basic income, remains untested. Retraining is also imperfect: workers may not be able to find employment even after they are retrained. More importantly, the retraining process will be for naught if workers head for other professions which are vulnerable to robots and artificial intelligence.

This is a conundrum for the developed world, and Gates is right in that the problems may come faster than the solutions. We should be careful however, not to impose policies that cast the net too widely, especially if the solution is meant to address this problem in advanced societies. We should be wary of slowing the growth of technology in the developing world, because the problem for much of emerging Asia is that technology is spreading too slowly, rather than too fast.

In this part of the world, three decades of the outsourcing of production from the West to East have resulted in the dominance of low-cost, labor-intensive manufacturing that has arguably outlived its purpose.  Three decades ago, with one of every two Asian stuck in poverty, China and other emerging Asian economies did their utmost to kick start growth through industrialization.  The results speak for themselves: growth at 5 to 10 per cent per annum, the creation of hundreds of millions of jobs, significant reductions in poverty and improvements in quality of life, health, and education across the region.

These economies have since expanded, and wages are rising. Low-cost manufacturing no longer looks like a sure bet. In 2014, the Boston Consulting Group calculated that China had only a 5 per cent edge in cost competitiveness compared to the U.S. and might be level with the U.S. in the next few years. Tellingly, the Chinese government has undertaken a concerted effort to push its companies up the value chain, using technology, training, and rising wages.

Yet across the majority of emerging Asia including China- in factories and warehouses, at toll gates and service points - humans do work when even a low degree of automation would yield better, faster, and more economical results. Many of these cases easily qualify as under-employment, where people are assigned to jobs that are far below their abilities.  In China, today's millennials are balking at such a future, and factories are struggling to fill vacancies.

The legacy of the search for the lowest cost worker is a mindset that finds value only in the lowest price, regardless of efficiency and quality, and in some cases, regardless of human rights and environmental responsibility. This model is coming to an end, not only due to rising wages, but also due to the fact that today's buyers need their supply chains to be fast, agile and sustainable… and cheap.

In these circumstances, with factories squeezed by rising costs on one side and rising expectations on the other, technology offers the only way to raise productivity and quality, increase safety and sustainability, and thereby allow manufacturing to remain in place even as wages rise. To put it bluntly, if a robot can help remove a worker from hazardous or unsafe work, I would like to bless that robot rather than tax him.

The boost in productivity is sorely needed in a region where productivity growth has slowed down even as wages have kept rising. Most labor productivity studies carried out in Asia show that after large gains in labor productivity in the 1990s and early 2000s, growth in labor productivity in recent years has slowed down by a factor of two or three in China, Korea, Malaysia, and Thailand, among others.  If Asia's first round of productivity gains came primarily from labor and capital inputs, the next generation needs to come from technology.

In other words, over time, the introduction of greater degrees of automation and robots to manufacturers in the developing world can provide the same type of growth injection that the introduction of labor intensive manufacturing did many years ago. If this is to happen, policymakers will need to provide manufacturers support such as access to financing, capacity building, and training. This will be costly but perhaps not as costly as stagnation.

Over the long term, even a more automated manufacturing model may become obsolete. Although no one can know what the eventual model may look like, it is almost certain that there will be serious jobs impacts along the way. This has been the subject of several previous articles in this column and for sure, societies need to prepare for them.

Luckily we will not get there overnight, for the technology adoption trajectory in developing Asia is, if the present is any guide, long and gently sloping, in contrast to what Bill Gates described as "all at once" in the developed world.

The World Economic Forum says that we have already entered the Fourth Industrial Revolution, and in some parts of the OECD and for the elite in some urban areas in Asia, this may be true. But in the rest of the region, and particularly in its major producer countries, enterprises are still having a rough time making the most of the Third. The solutions here will look very different as a result.

The views expressed in the reports featured are the author's own and do not necessarily reflect Asia Global Institute's editorial policy.


Pamela Mar

Senior Fellow, Asia Global Institute

Pamela Mar


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The University of Hong Kong
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